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Lost in Oil’s Rally: $2 Trillion-a-Year Refining Industry Crisis

Forest Products IIII - 8 hours 29 min ago

(Bloomberg) -- Crude oil is the world’s most important commodity, but it’s worthless without a refinery turning it into the products that people actually use: gasoline, diesel, jet-fuel and petrochemicals for plastics. And the world’s refining industry today is in pain like never before.“Refining margins are absolutely catastrophic,” Patrick Pouyanne, the head of Europe’s top oil refining group Total SA, told investors last month, echoing a widely held view among executives, traders and analysts.What happens to the oil refining industry at this juncture will have ripple effects across the rest of the energy industry. The multi-billion-dollar plants employ thousands of people and a wave of closures and bankruptcies looms.“We believe we are entering into an ‘age of consolidation’ for the refining industry,” said Nikhil Bhandari, refining analyst at Goldman Sachs Inc. The top names of the industry, which collectively processed well over $2 trillion worth of oil last year, are giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. There are also Asian behemoths like Sinopec of China and Indian Oil Corp., as well as large independents like Marathon Petroleum Corp. and Valero Energy Corp. with their ubiquitous fuel stations.The problem for the refiners is that what’s killing them is the medicine that’s saving the wider petroleum industry.When U.S. President Donald Trump engineered record oil production cuts between Saudi Arabia, Russia and the rest of the OPEC+ alliance in April, he may have saved the U.S. shale industry in Texas, Oklahoma and North Dakota, but he squeezed refiners.A refinery’s economics are ultimately simple: it thrives on the price difference between crude oil and fuels like gasoline, earning a profit that’s known in the industry as a cracking margin.The cuts that Trump brokered lifted crude prices, with benchmark Brent crude soaring from $16 to $42 a barrel in the space of a few months. But with demand still in the doldrums, gasoline and other refined products prices haven’t recovered as strongly, hurting the refiners.The industry’s most rudimentary measure of refining profit, known as a 3-2-1 crack spread (it assumes three barrels of crude makes two of gasoline and one of diesel-like fuels), has slumped to its lowest level for the time of the year since 2010. Summer is normally a good period for refiners because demand rises with consumers hitting the road for their vacations. This time, however, some plants are actually losing money when they process a barrel of crude.Worst FearJust a few weeks ago, the outlook appeared to be improving for the world’s biggest oil consumers. Demand in China was almost back to pre-virus levels and U.S. consumption was gradually rebounding. Now, a second wave of infections has prompted Beijing to lock down hundreds of thousands of residents. Covid-19 cases are also on the rise in Latin America and elsewhere.With demand in the U.S. now showing signs of heading south again as coronavirus cases flare up in top gasoline-consuming regions including Texas, Florida and California, the margins are at risk of deteriorating in America, which accounts for nearly two in each ten barrels of oil refined worldwide.“The worst fear for refiners is a resurgence of the virus and another series of lockdowns around the world that would again significantly impact demand,” said Andy Lipow, president of Lipow Oil Associates in Houston.Another problem is that -- where it has been recovering -- the demand pickup has been uneven from one refined product to the next, creating significant headaches for executives who need to select the best crudes to purchase, and the right fuels to churn out. Gasoline and diesel consumption has surged back, in some cases to 90% of their normal level, but jet-fuel remains nearly as depressed as at the nadir of the coronavirus lockdowns, running at just 10% to 20% of normal in some European countries.Refiners had resolved the problem by blending much of their jet-fuel output into, effectively, diesel. But that, in turn, is creating a new challenge: too much of so-called middle distillates like diesel and heating oil.“Right now gasoline demand is barely keeping some plants alive,” said Stephen Wolfe, head of crude oil at consultant Energy Aspects Ltd. “And with jet production shifting over to diesel and gasoline production, that puts even more strain on product supply,” he added.In the U.S. refining belt, processing rates are being continually tweaked in response to potential fluctuations in demand. In April, during the height of U.S. lockdowns, Valero Energy Corp.’s McKee, Texas, refinery cut rates to about 70%. It then raised processing to near 79% in anticipation of the Memorial Day holiday, before finding a new low of 62% by mid June, according to people familiar with the situation.Ultimately, if refiners don’t make money, they buy less crude, potentially capping the oil-price recovery of the past few months for Brent and other benchmarks. Even so, the actions of Saudi Arabia, Russia and the rest of the OPEC+ group suggest that refiners will remain squeezed for longer, with oil prices outpacing the recovery in fuel prices.The immediate problem is compounded by a longer-term trend: the industry has probably overbuilt over the last decades, and older plants in places like Europe and the U.S. can’t compete with new ones popping up in China and elsewhere in the world.“Refinery margins in the next five years are going to be worse than the average for the last five years, and particularly bad in Europe,” said Spencer Welch, vice president of oil markets and downstream consulting at IHS Markit. “We already thought that refining was in for a tough time, even more so now.”Catalyst for ChangeThe weakness means that the industry’s collective earnings will plunge to just $40 billion this year, down from $130 billion in 2018, according to an estimate from industry consultant Wood Mackenzie Ltd. of 550 refineries around the world.That could be a catalyst for change. The demand hit from the virus is yet to cause any delays in a number of mega-refining projects, most of which are in China and the Middle East, that will start operations from 2021 to 2024, according to the analysts at Goldman Sachs. This will cause global utilization rates to be 3% lower over this period than in 2019. Plants are more likely to close in developed countries because the bulk of demand -- and new refining capacity -- is in developing nations, they said.Many of the refineries that are being built in the Middle East and China will also get government backing, a fact that only makes life more challenging for the plants in Europe and the U.S.The industry is already moving to resolve the overcapacity: oil trader Gunvor Group Ltd. has said it may mothball its refinery in Antwerp, and U.S. refining group HollyFrontier Corp. in June announced it was changing its Cheyenne plant from processing crude oil into a renewable diesel facility.For now though, there’s a more mundane reality to deal with: the market. OPEC and its allies can constrain the supply of crude -- squeezing refiners -- but they can’t make end users consume fuel.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Gold Funds Underpin Pandemic Price Rally as Jewelers Vanish

Forest Products IIII - 13 hours 29 min ago

(Bloomberg) -- Western investors piling into gold in the pandemic are more than making up for a collapse in demand for physical metal from traditional retail buyers in China and India, helping push prices to an eight-year high.Inflows into exchange-traded funds this year –- mostly in North America and Europe –- are already inches away from the annual record set in 2009, according to data compiled by Bloomberg. Meanwhile, demand in China and India, the world’s two biggest buyers of gold bars, coins and jewelry, plunged after the coronavirus stalled imports and emptied malls. Sales have been slow to return as rising prices deter buyers.The shift underscores the global push-and-pull for gold between western investors looking for a safe haven and traditional demand centers for physical gold in Asia. It also raises crucial questions for the market this year, as gold prices risk losing support if ETF inflows slow down, or could gain even more momentum if Chinese and Indian demand bounces back.“We expect the U.S. and European investors to remain interested in gold regardless of Asian demand,” said Darwei Kung, head of commodities and portfolio manager at DWS Investment Management Americas Inc. “If the buying pattern were to go up as well for China and India at the same time as what you see in the ETF market, then the price would have come up even further.”Fear-driven investment demand in developed countries has contributed about 18% to this year’s gain in gold prices, while weaker buying by emerging-market consumers provided an 8% drag, Goldman Sachs Group Inc. estimated in a June note. An economic recovery and a weaker dollar may mean emerging-market demand in the second half of the year could “shift from being a drag on gold prices to a tailwind.”Still, higher gold prices could exacerbate “demand destruction” in the East and make prices even more dependent on investors in the West, said Commerzbank AG analyst Carsten Fritsch.Spot gold has risen 17% in 2020, closing out the second quarter with the largest rally in more than four years. On Tuesday, gold futures on the Comex topped $1,800 an ounce for the first time since 2011.Read more: Gold Futures Top $1,800, Capping Best Quarter in Four YearsThe higher prices have had a chilling effect on Asian shoppers even as economies reopen. Traditionally seen as a store of wealth, demand for jewelry in China and India tumbled as lockdowns, job losses and weak economic growth curbed discretionary spending.Precious metals consultancy Metals Focus Ltd. forecasts a 23% decline for Chinese gold jewelry consumption in 2020, while Indian demand is expected to drop 36%. Chinese gold sales could be as much as 30% lower than 2019, said China Gold Association Chief Executive Officer Zhang Yongtao. Still, that is an improvement from a previous estimate of a 50% decline when the outbreak was at its peak he said.Nidhi Saxena, 31, a software engineer at a technology firm based in Gurugram, India, was planning to buy gold bangles in March, but changed her mind as gold prices soared and colleagues were laid off.“I can’t even think of buying gold right now when I am not even sure if my job is safe,” she said.Trade flows have also been affected. In India, which imports almost all the gold it consumes, imports dropped by about 99% in April and May.By contrast, demand from ETFs has surged as worries over the economic outlook, negative real rates and currency debasement after massive global stimulus measures drove haven-seeking investors into gold.Read more: Hedge Fund Luminaries Are Lining Up Behind Gold AgainTotal holdings of physical gold in ETFs have risen by more than 600 tons this year, according to data compiled by Bloomberg, and ETF inflows surpassed retail purchases in China and India in the first quarter for the first time since 2009. While consumer data isn’t available yet for the second quarter, ETF buying increased during the three months to June.“The demand for gold in 2020 has been almost exclusively supported by investment demand,” said Steve Dunn, head of ETFs at Aberdeen Standard Investments. “Flows are charging ahead at an unprecedented pace.”Still, ETF buying only represents one part of this year’s dramatic flows of bullion from East to West – a reversal from the typical direction in more normal times. More than 700 metric tons of gold have been added to vaults around New York this year, the most in records going back to 1993.The massive imports into the U.S. were due in part to a scramble for gold among New York traders after the market was upended as virus lockdowns grounded planes and closed refineries. Comex inventories have since surged to a record.Read more: Virus Has Sparked Round-the-Clock Rush to Fill U.S. Gold VaultsIt’s not the first time investment demand for gold has surged during a period of global uncertainty, boosting prices and deterring Asian shoppers. Yet it’s unclear what role lingering coronavirus concerns may play. During the global financial crisis, consumer buying in China and India rebounded from lows within a year but it took until 2013 -- and a slump in prices -- for combined demand in the region to hit the highest in a decade.“Definitely we see that this year, the retail business will be quite challenging, especially for the jewelry sector,” said Roland Wang, managing director for China at the World Gold Council. A rebound in demand will depend on the economic and pandemic situation, he said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Quant Fund Gains 108% by Dumping China Stocks a Day After Buying

Forest Products IIII - 13 hours 29 min ago

(Bloomberg) -- A Chinese quant-trading firm made 108% this year by selling every stock bought the previous day.Zhang Ruiqi, the 34-year-old chairman of Shenzhen Qianhai United Fortune Fund Management Co., screens about a dozen mainland-listed stocks every day for their turnover, momentum and volatility. He then does it all over again the following day. That strategy, which he calls the “all-in-all-out” method, helped his flagship $5 million fund gain 108% this year through June, according to data provider Simuwang.com.Rather than pick stocks based on their earnings prospects or dividends, quantitative stock funds typically rely on complex and proprietary mathematical models to generate returns. Instead of buy-and-hold, quants are known for their high-frequency trading systems that are well-suited for high turnover markets like China. Quant strategies have become extremely popular globally in the past few years as traditional stock-picking methods struggled to beat equity indexes.“Our strategy allows us to make money from stocks that have the strongest market sentiment on a day-to-day basis -- and that has turned out to be overwhelmingly successful so far this year,” said Zhang in a phone interview from his office in Shenzhen.High trading volumes have been “essential” to the fund’s success, said Zhang. It has also been helped by certain sectors sustaining gains, particularly stocks associated with technology, health care, agriculture, consumer goods and baijiu liquor. “Market sentiment on hot sectors this year can typically be sustained for about three to five days, or more,” said Zhang. “So our win rate can be quite high by selling quickly.”The fund includes other parameters to screen which stocks to pick on any given day -- including volume, current market value, prices and net inflows. It employs an algorithmic trading mechanism for timing when to buy and sell. Investors in mainland China are not allowed to sell shares on the same day of purchase.The strategy does have limitations, said Zhang. The bigger the fund’s size, the more market liquidity it needs -- to the point where assets under management topping 100 million yuan ($14 million) would hurt the strategy’s effectiveness, he said. The fund is also not immune to extreme market conditions. “If the decline of the fund’s net asset value exceeds 10%, or if its recovery time is too long, we need to re-examine the strategy,” he said.He is optimistic on the market’s prospects for the second half. The CSI 300 Index hit its highest level since 2015 on Friday and leverage is at a five-year high, demonstrating the return of risk appetite at a time Beijing is speeding up efforts to boost stock trading. Total average daily trading volume has hit more than 740 billion yuan so far this year, around 45% higher than that of the full year of 2019, according to data compiled by Bloomberg.“As long as the trading volume remains above 400 billion yuan per day, this strategy will still be effective,” said Zhang, noting the upcoming revamp of the Shanghai Composite Index and ChiNext market reforms. “Volumes are unlikely to drop.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Notable Insider Buys: Novartis, T-Mobile And More

Forest Products IIII - Sat, 04/07/2020 - 22:07

* Insider buying can be an encouraging signal for potential investors. * The executive chair of a petroleum production company returned to the buy window last week. * A former director and a former 10% owner also made notable purchases.Conventional wisdom says that insiders and 10% owners really only buy shares of a company for one reason -- they believe the stock price will rise and they want to profit. So insider buying can be an encouraging signal for potential investors, particularly during periods of uncertainty.Insiders continued to add shares despite overall market volatility and economic uncertainty. Here are some of the most noteworthy insider purchases reported in the past week.Continental Resources Continental Resources, Inc. (NYSE: CLR) saw its founder and executive chair Harold Hamm return and purchase more than 3.13 million additional shares. At per-share prices between $15.18 and $17.92, that totaled more than $52.37 million. His stake is up to 9.61 million shares. The total float is about 74.5 million shares.Analysts at UBS raised their price target last week.Continental Resources stock rose more than 21% last week and was last seen at $18.30 a share. That is above Hamm's most recent purchase price range. The share price is up over 23% since the year-to-date low back in early March.T-Mobile Softbank Executive Chair Ron Fisher, a recently resigned T-Mobile Us Inc (NASDAQ: TMUS) director, also stepped up to the buy window last week. He indirectly picked up 350,000 shares of this wireless services provider for $103 each. That cost him $36.05 million.T-Mobile has divested its Sprint Prepaid business as part of its merger agreement. T-Mobile stock closed up fractionally last week to $106.01 a share, nearly 3% above Fisher's purchase price. The stock is more than 56% higher than the year-to-date low during the pandemic panic selling in March.Novartis A former 10% owner purchased 125,000 Novartis AG (NYSE: NVS) shares last week. The share price was $17, and the total for the transaction came to more than $2.12 million. That brought the stake to over 1.18 million shares, and it came on the heels of the settlement of a $678-million bribery lawsuit.Novartis stock ended last week at $87.57, in the same neighborhood as where it started the week. While the share price is about 21% higher since its year-to-date low in March, it is still well below its consensus price target of $104. That estimate is based on the response of just three analysts, though.See also: Insider Sells Ambarella's StockFurthermore, note that there was some amount of insider buying at Amazon.com, Inc. (NASDAQ: AMZN), Cardtronics PLC (NASDAQ: CATM) and Principal Financial Group Inc (NASDAQ: PFG) last week as well.At the time of this writing, the author had no position in the mentioned equities.Keep up with all the latest breaking news and trading ideas by following Benzinga on Twitter.See more from Benzinga * Barron's Picks And Pans: Chipotle, Lululemon, Zoom Video And More * Bulls And Bears Of The Week: Lululemon, Square, Tesla And More * Barron's Picks And Pans: Biden, ESG And Reopening Picks(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Bulls And Bears Of The Week: Lululemon, Square, Tesla And More

Forest Products IIII - Sat, 04/07/2020 - 20:58

* Benzinga has examined the prospects for many investor favorite stocks over the past week. * This week's bullish calls the he electric vehicle leader and a car rental giant. * A financial giant and a COVID-19 vaccine play were among the bearish callsThe big three U.S. indexes ended the holiday-shortened week with gains of at least 3%. A big bankruptcy in the oil patch comes ahead of a possible rekindled oil price war, and jobs numbers were better than expected.Also, the leading electric vehicle maker trounced expectations last week and became the world's most valuable automaker. And the COVID-19 resurgence continues to wreak havoc on businesses large and small.Benzinga continues to examine the prospects for many of the stocks most popular with investors. Here are some of this past week's most bullish and bearish posts that are worth another look.Bulls In "Tesla Analyst Sees 'Major Home Run' In Q2 Deliveries Despite Year-Over-Year Declines," Elizabeth Balboa shares why better-than-expected Tesla Inc (NASDAQ: TSLA) deliveries are a "jaw dropper."Shanthi Rexaline's "Why Square Is A 'Need-To-Own' Stock For Years To Come" reveals why Square Inc (NYSE: SQ) revenue is likely to increase more than three times over the next five years."Avis Budget Benefits From Improving Used Car Market, Morgan Stanley Says In Upgrade" by Priya Nigam suggests that Avis Budget Group Inc. (NASDAQ: CAR) appears poised for share gains.Its first major acquisition brings Lululemon Athletica Inc (NASDAQ: LULU) a new revenue stream and new customers, according to Wayne Duggan's "Wall Street Weighs In On Lululemon's Mirror Acquisition."For additional bullish calls, also have a look at "2 Reasons Spiking COVID-19 Cases Doesn't Mean You Should Be Dumping Stocks" and Matt Maley On How To Profit When The Market's 'Dead Wrong.'" Bears "Morgan Stanley Option Traders Bet Millions On 25% Long-Term Downside" by Wayne Duggan discusses why the next year-and-a-half may not be as kind to Morgan Stanley (NYSE: MS) as the past three months.Jayson Derrick's "Uber's Ex-Chief Business Officer Isn't A Fan Of Reported Postmates Deal" looks at whether Uber Technologies Inc (NYSE: UBER) really benefits from its proposed acquisition of the food delivery business.Uncertainty about the Inovio Pharmaceuticals Inc (NASDAQ: INO) COVID-19 vaccine candidate remains. So says "Inovio Analyst Downgrades COVID-19 Vaccine Developer, Says Risk Higher After Rally" by Shanthi Rexaline.In Priya Nigam's "BofA Downgrades iHeartMedia On Lower Visibility, Advertising, Event Headwinds," see why iHeartMedia Inc (NASDAQ: IHRT) lacks meaningful catalysts in the near term.Be sure to check out "BofA Cuts Macau Estimates After 97% Year-Over-Year Drop In Gross Gaming Revenue" and "How Hong Kong's New Security Law May Affect Local Investments" for additional bearish calls.At the time of this writing, the author had no position in the mentioned equities.Keep up with all the latest breaking news and trading ideas by following Benzinga on Twitter.See more from Benzinga * Barron's Picks And Pans: Biden, ESG And Reopening Picks * Bulls And Bears Of The Week: Apple, Facebook, Tesla And More * Barron's Picks And Pans: Brunswick, Cloudflare, Gilead And More(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Is PC Tel Inc (PCTI) A Good Stock To Buy?

Forest Products IIII - Sat, 04/07/2020 - 20:14

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial […]

Gundlach lashes Fed's 'incredible fiscal lending' during coronavirus collapse

Forest Products IIII - Sat, 04/07/2020 - 19:12

Billionaire bond investor Jeffrey Gundlach believes the Fed's feats of lending and bond buying may come back to haunt policymakers.

Trump Says Mount Rushmore Will Never Be Desecrated

Forest Products IIII - Sat, 04/07/2020 - 18:59

Jul.04 -- Speaking Friday night at Mount Rushmore in South Dakota, President Donald Trump said the national monument will never be desecrated. He also spoke about the "cancel culture" and the movement by some to tear down monuments around the country.

Trump Says New Left Wing Revolution Is Designed To Overthrow America

Forest Products IIII - Sat, 04/07/2020 - 18:57

Jul.04 -- President Donald Trump spoke at Mount Rushmore on Friday night, claiming "the left wing cultural revolution is designed to overthrow the American revolution."

7 Most Powerful Navies In The World: 2020 Rankings

Forest Products IIII - Sat, 04/07/2020 - 18:26

The 7 most powerful navies in the world have spared no expense in ensuring the safety of their seas, and by proxy, their nations. Any country which has a sea needs a navy in order to protect its shores from other nations and ensure the safety of their own nation. Navies are generally used to protect their […]

Boeing signals end of 747 jumbo jet - sources

Forest Products IIII - Sat, 04/07/2020 - 16:41

Boeing Co and suppliers set the final number of parts it would need for the 747 jumbo jet program at least a year ago, signaling the end for a plane that democratized global air travel in the 1970s. Francis Maguire reports.

Even popular Ford F series hit hard amid plummeting industry sales

Forest Products IIII - Sat, 04/07/2020 - 16:33

Ford sales hit hard while Explorer and Ranger make gains

Here's What Brookfield Infrastructure Corporation's (NYSE:BIPC) Shareholder Ownership Structure Looks Like

Forest Products IIII - Sat, 04/07/2020 - 16:11

A look at the shareholders of Brookfield Infrastructure Corporation (NYSE:BIPC) can tell us which group is most...

Tesla No Longer Even A Growth Company; Going Bankrupt: Shortseller

Forest Products IIII - Sat, 04/07/2020 - 14:16

Stanphyl Capital letter to investors for the month ended June 30, 2020, discussing their short thesis for Tesla Inc (NASDAQ:TSLA) and other positions in several small-cap stocks. For June 2020 the fund was down 3.9% net of all fees and expenses. By way of comparison, the S&P 500 was up 2.0% while the Russell 2000 was up […]

We Wouldn't Be Too Quick To Buy OGE Energy Corp. (NYSE:OGE) Before It Goes Ex-Dividend

Forest Products IIII - Sat, 04/07/2020 - 14:02

It looks like OGE Energy Corp. (NYSE:OGE) is about to go ex-dividend in the next four days. This means that investors...


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